Acc121 Survey of Accounting: P6-4 Del Mar Appliances uses the periodic inventory system

Acc121 Survey of Accounting

P6-4 Inventory by three cost flow methods
Del Mar Appliances uses the periodic inventory system. Details regarding the inventory of appliances at August 1, 2007, purchases invoices during the year, and the inventory count at July 31, 2008, are summarized as follows:
Model Inventory August 1 Purchases Invoices Inventory Count July 31
1st 2nd 3rd
T742 2 at $125 2 at $130 4 at $135 2 at $140 5
PM18 7 at $242 6 at $250 5 at $260 10 at $259 9
K21G 6 at $80 5 at $82 8 at $89 8 at $90 6
H60W 2 at $108 2 at $110 3 at $128 3 at $130 5
B153Z 8 at $88 4 at $79 3 at $85 6 at $92 8
J600T 5 at $160 4 at $170 4 at $175 7 at $180 8
C273W - 4 at $75 4 at $100 4 at $101 5

Instructions:
1. Determine the cost of the inventory on July 31, 2008, by the first-in, first-out method. Present data in columnar form, using the following headings:
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on July 31, 2008, by the late-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on July 31, 2008 by the average cost method, using the columnar headings indicated in (1).
4. Discuss which methods (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
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